Segmentation: a strategy by which a company divides its market into groups of potential customers with similar characteristics,

needs and behaviors

➔ Variables used: geographic, demographic, psychographic, behavioralistic, company type in industrial markets

Targeting: evaluating the attractiveness of a segment(s) & choosing a segment or segments

➔ Criteria: size, future growth, competition, brand loyalty of existing customers, attainable market share, required market share
to break even, sales potential, profitability,

Positioning: strategy that offers & communicates a unique benefit or set of benefits to customers in target market
➔ Good positioning strategy is distinctive, providing 1 simple, consistent message about benefits & differentiates by setting the
firm/product apart from competitors
◆ Ex: T-Mobile, “the uncarrier”
➔ Focus on needs of target customer; cannot be all things to all people

Product: good (tangible) or service (intangible) or a combo (Ex. cellphone) that offers a customer value

Place: “location” where buyers/sellers meet to exchange

➔ Resources exchanged: goods, services, $, info, knowledge & skills
➔ Flow through “places” = physical locations linked by distribution channels that reach the target customer (Ex. warehouses,
distribution centers, retail stores)

Distribution Channels: sequence of businesses that move products from “locations” of producers or service providers to “locations”
of customers
➔ Channel Functions: selling, promoting, providing service (e.g. installing, maintenance) & delivery
➔ *Note: in service businesses, location of producer & consumer = same
➔ Fulfillment: selling, promoting & delivering

Direct: producer mkts direct to consumer → Ex. Apple store or online

Indirect: includes intermediaries
● Simplest: producer selling through retail stores who sell to consumers (Ex.
Apple w/Best Buy & Verizon, etc.)
● More complex: includes distributors before retail stores

Promotion: process where firm communicates info about benefits of product to customers

Sales Promotion: anything a company does to motivate you to buy more/buy more frequently; usually short term (Ex. discounts)
Personal Selling: Ex. Starbucks baristas write your name on your cup; Baristas are responsible for Starbucks personal selling

Price: amount a firm asks customer to pay for its product

➔ Important bc: signal of value/worth/quality of product to customer & price helps drive profit bc it drives revenue

Pricing Strategies: Penetration & Skimming

➔ Penetration: firm prices product below-market to encourage trial & grab market share; *Note: this is often disguised by a
price promotion
➔ Skimming: firm introduces product @ price premium, reflecting a superior value proposition; challenge is to maintain
customers perception of value @ least until product matures
Starbucks used STP and the 4Ps to create value for customers (customer perception of benefits/price), value
for the firm (profit) and sustain firm value.

1. To create customer value, it first targeted large city hubs, expanding to nearby smaller cities and
suburbs with similar target demographics through positioning itself as a special coffee business. It
strengthened its “third-place” value proposition of providing high quality products/ services with a
“neighborhood-feel.” It placed itself mostly inside lobbies in colder environments; elsewhere,
standalone stores close together allowed for faster service and less lines. It aimed to be less reliant
on retail outlets, focusing on direct distribution channels with the majority of stores being company
owned. Despite original use of word-of-mouth and local marketing, following stock price collapses,
advertising shifted to national ads with environmental and ethical focuses, in addition to baristas
personal selling efforts. Products began to make highly promoted debuts in store before more
publicized transitions into grocery chains.
2. To create firm value, Starbucks priced coffee as a luxury good: “six-to-eight times [that] of ordinary
coffee.” Initially, Starbucks used price skimming to show its coffees high worth by selling rich, exotic
flavors and replicating authentic Italian-style coffee bars. Starbucks takes a commodity (coffee) and
differentiates its position by focusing on the unique customer experience, whereby providing the
pricing power to charge a premium price.
3. To sustain value, Starbucks realized it began internally with the employees, aiming to ensure their
role, happiness, and capability, in order to ultimately better serve the customer. It delivered a
consistent experience to loyal customers, in addition to countering foreign imitators with accelerated
foreign growth, as a way of acquiring new customers via inviting atmospheres and strong-flavored
coffee. In hard times, with reduced luxury spending, it cut earnings and sales growth projections,
allowing a turnaround. It turned around to make more profit and retain/acquire customers with a re-
trained staff, modernized technology and improved, less wasteful, operations, leading to financial
discipline, bottom-line efficiency and a back-to-basics focus.